VZCZCXYZ0001
RR RUEHWEB

DE RUEHTI #0624 2251606
ZNR UUUUU ZZH
R 121606Z AUG 08
FM AMEMBASSY TIRANA
TO SECSTATE WASHDC 7354

UNCLAS TIRANA 000624 
 
SIPDIS 
 
DEPT FOR EUR/SCE 
PLEASE PASS TO TREASURY FOR VIMAL ATUKORALA 
 
E.O. 12958:N/A 
TAGS: ECON EAID PGOV AL
SUBJECT: ALBANIAN PARLIAMENT APPROVES SUPPLEMENTARY BUDGET 
 
Ref:  A) TIRANA 424  B) TIRANA 241 
 
Higher Revenues Despite Lower Tax Rates 
--------------------------------------- 
 
¶1.  For the third year in a row, tax and customs revenue collection 
exceeded forecasts for the first half of the year.  Collections were 
seven percent (USD 81 million) above plan, allowing the Parliament 
to approve a supplementary budget on July 24.  Although the GOA has 
reduced both business and personal taxes over the last three years, 
its strategy of bringing more taxpayers into the formal economy and 
fighting tax evasion and corruption seems to be working (ref A). 
 
Windfall Will Be Used For Infrastructure And Budget Deficit 
-------- ---- -- ---- --- -------------- --- ------ ------- 
 
¶2.  Additional revenues/savings were the result of higher income 
from state-owned companies, reallocation of funds, and savings on 
interest payments from the original budget for a total of USD 270 
million to re-allocate in the supplemental budget.  The windfall 
will be used for road projects, to support local government, and to 
reduce the budget deficit.  The Ministry of Transport and 
Telecommunications will receive about USD 103 million for the 
already over-budget Durres-Kukes road project (ref B).  Another USD 
32 million will be transferred to local governments for road 
projects and other infrastructure projects.  The remaining USD 135 
million, plus a USD 140 million capital spending reduction, will be 
used to reduce the budget deficit from 7.9 to 5.2 percent of GDP (as 
requested by the IMF).  The supplemental budget will also allow the 
government to keep its promise to increase pensions and salaries 
nationwide. 
 
Opposition Critical 
------------------- 
 
¶3.  The opposition, which partially boycotted the final vote, said 
the supplementary budget confirms the government's inability to 
implement public projects according to plan.  Former Minister of 
Finance Malaj criticized the new budget for ignoring the severe 
social problems caused by global price increases in commodities, 
fuel and food.  He added that higher revenue collection was only due 
to higher VAT from price increases.  Malaj also attacked the 
government for not including expected revenues from the 
privatization of ARMO and the distribution branch of KESH in the 
budget.  However, IMF representative Ann-Margaret Westin applauded 
the supplementary budget, particularly the reduction of the budget 
deficit and the improved performance of the tax administration in 
increasing the tax base. 
 
Comment 
------- 
 
¶4.  Increasing the tax base by reducing the informal economy and 
reducing corruption through simpler and more transparent tax 
procedures are certainly signs of progress.  However, the real 
challenge for the government is to properly plan and execute its 
spending programs in order to provide better infrastructure and 
services to its citizens. 
 
LANDAU